Severance pay: A x B x C, the cantonal court formula.
An employment contract may end due to several reasons:
- the end of a fixed term contract;
- (early) retirement of the employee;
- dismissal during the probationary/trial period;
- dismissal on the spot;
- by giving notice to the other party, in which case the employer first has to get an approval of the UWV jobcenter;
- by mutual consent, in which case most of the time the employers' notice period is taken into account in order (for the employee) to obtain an unemployment benefit;
- by dissolution of the employment contract by the cantonal judge.
Should the employer give notice he has to take into account a term of notice:
- up to 5 years of service: 1 month;
- between 5 and 10 years of service: 2 months;
- between 10 and 15 years of service: 3 months;
- 15 or more years of service: 4 months.
Severance pay in accordance with the cantonal court formula A x B x C is officially only under discussion when the cantonal judge terminates the employment contract by courts' sentence.
The cantonal court formula A x B x C is a recommendation, so it is neither part of the Dutch Civil Code, nor an official instruction, it is just there to help the cantonal judges in their decision whether or not a certain amount of money should be paid as a compensation at the end of the employment contract.
The compensation in accordance with the cantonal court formula is calculated by three factors: factor A, B and C, in which:
- "factor A" is the number of "weighed" years of service;
- "factor B" is the remuneration, the last earned fixed, gross monthly salary;
- "factor C" is the correction factor.
The total years of service is calculated, in which "six months and one day" is rounded off upwards, and less is rounded off downwards. "10 years and 3 months" will be 10 years, and "10 years and 8 months" will be 11 years.
These years of service of the employee will then be weighed, in which the duration of the employment contract and the age of the employee are weighed in four different age-groups:
- up to and including the age of 34;
- from 35 up to and including the age of 44;
- from 45 up to and including the age of 54 and
- 55 years and above.
In each age-group the number of years of service are calculated and rounded off, "6 months and one day" upwards, less downwards.
Should there be no difference between "the total years in service" and "the sum of the rounded off years of service in the four age-groups" (please compare this with calculation example 1 in the Informationleaflet) than in each age-group the years of service are weighed and calculated as follows:
- the number of years of service before the age of 35: times 0.5;
- the number of years of service between 35 and 45: times 1;
- the number of years of service between 45 and 55: times 1.5 and
- the number of years of service as from the age of 55: times 2.
Should there however be a difference between "the total duration of the years of service" and "the sum of the rounded off years in the four age-groups" (please compare this with calculation examples 2 and 3 in the Informationleaflet), than there will be a rounded off situation in favour of the number of years of service in the highest age-group.
The total number of weighed years of service makes "the factor A" in the cantonal court formula A x B x C. By the way, this total number of weighed years is not rounded off, so factor A may actually be 8.5.
Part of factor B are the last earned fixed gross monthly salary and all other fixed remunerations such as holiday allowance (most of the time 8%); shiftwork allowance and a fixed 13 month.
Not part of the factor B are the old age pensionfund premiums paid by the employer; travelling expenses; lodging expenses; a company car or overtime payment.
With the C-factor, the correction factor, the cantonal judge may take into consideration blame or guilt on the part of the employer or the employee for the termination of the employment contract. The cantonal judge may also take into account the (bad) financial situation of the employer, and also the chance (or difficulty) for the employee to obtain another job.
In short, the cantonal court formula is officially only a recommendation, an aid to calculate the amount of severance pay in case the cantonal Judge is going to dissolve an employment contract and, taking all things into consideration, a severance payment is considered to be fair. Severance pay on the basis of the cantonal court formula is neither a right for the employee, nor an obligation for the employer to pay, nor an obligation for the cantonal judge to impose. The formula is a recommendation, a calculation aid.
However, having said this, in the daily practice the cantonal court formula is often used by the Unions in negotiations for a redundancy scheme (Sociaal Plan), and the formula is also often used in negotiations between employer and employee in the situation they both want to end the employment contract with mutual consent due to personal reasons, problems within the labour relation, or due to a bad economic company situation, and by doing so settle matters without a courts' intervention.